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By | Timothy Prickett Morgan 23rd May 2012 22:51

HP cuts 27,000 workers

Autonomy's Mike Lynch among thousands departing

As rumored last week, IT giant Hewlett-Packard is slashing its employee count worldwide to squeeze more profits from its revenue stream. The job cuts are not as deep as some had been expecting, but are still going to be tough on the company.

In a statement put out ahead of its conference call with Wall Street analysts, HP said that it was looking to cut between $3bn and $3.5bn in annualized costs from its restructuring as it exited its fiscal 2014, which ends in October of that year. To accomplish this savings goal, HP will need to shed approximately 27,000 workers, which is 7.7 per cent of its 349,600 worldwide workforce.

As was also rumored and as generally happens in these situations, HP is offering early retirement to employees first, before starting the layoff process, identifying employees to be let go. Because different countries have different rules about workforce reductions and in some cases labor unions that are involved in the process, it takes time to shed employees. This is particularly the case in Europe, which has the best labor laws on the planet.

"Workforce reductions are never easy because they affect people's lives," said Meg Whitman, HP's president and CEO, in a conference call with Wall Street analysts. "But in this case, they are absolutely necessary."

Cathie Lesjak, HP's CFO, said on the call that the company expects to shed 9,000 workers in fiscal 2012, which ends this October, and that it would be booking a $1.7bn charge for the restructuring this fiscal year. Of that, around $1bn will be booked in the third fiscal quarter of this year.

HP expects the remaining 16,000 employees to be shed over the next two years and to book another $1.8bn in charges for this. (HP will also be writing down another $1.2bn relating to the Compaq brand, which will be transitioned to entry-level computing in certain market segments instead of the joint "HP Compaq" brand. This change requires an impairment of goodwill.)

Sure to annoy HPers is the admission by Lesjak that the vendor will rehire employees to cover growth markets and is also to hire employees in lower-cost regions to replace those who are getting the sack.

HP intends to plow the majority of the funds it saves back into the business, and said that the moves it was making "are expected to yield significant improvements in efficiency and customer service during the next several years."

HP has singled out three key areas – wait for it – for future investment: cloud, big data, and security. HP is trying to come up with server, storage, services, and software angles for each of these three growth areas and did not provide much in the way of specific investments it would make.

Whitman said that HP will overhaul its supply chain and product delivery processors, including trying to reduce the number of different SKUs and products it sells, as well as taking a hard look at all of its real estate holdings to cut costs.

One person who will be leaving HP is Mike Lynch, the founder of big data software company Autonomy, who came to HP through its $10.24bn acquisition of Autonomy in August 2011 in the short era when Leo Apotheker was CEO at HP.

Whitman said that Autonomy had a bad quarter and was disappointing, and added that Bill Veghte, the executive vice president in charge of HP Software as well as the company's chief strategy officer, will take over Autonomy and that Lynch will leave HP after a transition period.

Lynch's exit follows that of Chris Lynch, the boss of HP's other big data acquisition, Vertica, who left HP back in March.

Whitman said that Autonomy was a "smart acquisition" and a "great product" and that the revenue miss was more a matter of execution than anything else and that it would take a few quarters to fix whatever the problem is. ®

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